
Strategic Adjacent Market Expansion
We are still getting great feedback from our blog on the Super Bowl commercials. One of those commercials – SodaStream’s “Sorry Coke and Pepsi” – generated some of the top buzz on Sunday night and into Monday morning. The value proposition of SodaStream is make-your-own soft drinks.
Today comes word of a fascinating strategic partnership between Coca-Cola and Green Mountain Coffee Roasters (http://online.wsj.com/news/articles/ SB10001424052702304 680904579365254053304212).
This deal has several interesting components:
- Coca-Cola will begin to brand and sell its products through a new in-home beverage system being developed by Green Mountain
- Coca-Cola is buying a 10% stake in Green Mountain
This move represents a significant strategic move for Coca-Cola, which has built one of the most valuable brands in the world through bottlers, distributors, restaurants, and retailers. This new bold and innovative strategy is going to change everything. The new beverage system will enable individual consumers to “make” their own favorite Coca-Cola product at home through their Keurig Cold system, which will be ready in September 2014.
From a business acumen perspective, this is an interesting case study for discussion. In Advantexe’s business acumen session, we typically introduce participants to several different strategic thinking models and frameworks including a tool called “Spider Charting”
Spider Charting is an effective strategic tool that enables an organization to plot out current and future market potential based on four different axes
- Products/Services offered to customers
- Customer Scope including your market segments
- Geographic scope of markets served
- Adjacent markets including partners, alliances, and vertical integration
It is a fascinating discussion when applying the Spider Chart framework to Coca-Cola and its announcement to partner with Green Mountain. In the graphic below, the blue lines represent the current state; Coca-Cola has a rich portfolio of brand names including Coke, Sprite, Fanta, etc. The company has a very loyal and well-defined customer segment, has world-class global distribution, and has become the #1 best known brand on the planet.
However, in terms of markets, Coca-Cola has primarily focused on bottlers and food services for distribution.
The red lines represent the new opportunity of expanding to the do-it-at-home market. By expanding to the do-it-at-home adjacent market, Coca-Cola opens up both an opportunity to expand distribution to existing customers and the opportunity to develop new customer segments.
The area on the visual between the blue lines and the red lines represents incremental revenue and profit growth.
From a strategic and financial perspective, this looks like a brilliant strategy. In 2010, Coca-Cola spent over $12 billion to buy its largest US bottling company and take control over the production and distribution. The increase in revenues from this deal will certainly help to off-set that investment.
From a business acumen learning perspective, the Green Mountain strategy is just as interesting to review. Green Mountain has engaged in several other similar deals with partners such as Campbell Soup and is moving to a “spoke” strategy of representing iconic brands in the complete and integrated do-it-at-home beverage market.
In conclusion, this is a great story and case study to understand and discuss for any business. Let us know your thoughts or if you have any questions!